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Euro lawyers see tortuous road ahead for Microsoft's Yahoo! bid

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!!!!! Microsoft is likely to face a torrid time from European regulators before it can even think of closing its proposed takeover of Yahoo!.

A leading UK competition lawyer told the Reg today: "Any big Microsoft acquisition is likely to be looked at very carefully, especially if it is in an area where they have been complaining about their rivals - I wonder if there is anything in the documents Microsoft filed in its complaint to the EU about Google which they are now regretting."

"The obvious initial fear could be that Microsoft would bundle search into Windows. That's something regulators will have to look at. It's possible that Microsoft will make a commitment not to do this before the deal goes ahead in order to head off regulators."

The lawyer predicted the deal would go straight to the people who deal with Microsoft generally: "Microsoft lost a case on interoperability within the enterprise and it is possible this deal will raise fears for wider interoperability. Either way, regulators will have a good hard look at this, not least because they will have Google jumping up and down and taking them to court if they don't."

Asked about possible conflict with US regulators, our source added: "It is almost inevitable there will be conflict. I don't know if there's any actual case here but there are facts to be looked at and I don't understand the American hands-off approach."

Dr Hans Friederiszick, managing director of the European School of Management and Technology in Berlin, said: “This is a two-pronged issue of competition and privacy and will be treated as such by the competition and regulatory authorities both in Europe and the US. Competition issues will focus on the question of whether this will encourage unilateral price increases for internet advertising via search engines, given the already high level of concentration in this market."

Friederiszick also noted the takeover would reduce the number of search engines with global audiences from three to two.

US regulators will also be looking at the deal. The Department of Justice said it would be interested in looking at the competition aspects of the takeover.

Becket McGrath, partner at London law firm BerwinLeightonPaisner, told the Reg: "There's no doubt US and European regulators will be looking at this closely."

"In more traditional industries it might be possible to sell off part of the business to reduce the regulators' concerns. But it's difficult to see how that would work - search is not really a different business, it's part of the portal."

McGrath also said that the deal could lead to leverage issues - Microsoft's desktop strength coupled with Yahoo's strength in web services could be seen as providing a stronger competitor for Google. But it could also be seen as protecting Microsoft's desktop position and therefore anti-competitive, because it would hinder the rise of other competitors in that market.

Another possible hurdle to the deal is a rival bid. But private equity groups are mostly licking their wounds from the credit crunch and don't have much else to add to a deal of this size. The only other option would be a big media company - but again, in an atmosphere of shrinking advertising spending, few would willingly enter a bidding war with Microsoft. ®